76-year-old Frederick W. Smith, founder and CEO of FedEx, was one of the original disruptors. And now he is taking on Amazon.
Smith started the world’s first overnight delivery service in 1971. He started it with courage and vision, grew it with leadership learned in the Marines, and gave it resilience through innovation and determination. (FDX: NYSE).
Smith came up with the idea for FedEx in 1965 while studying at Yale. He wrote the idea in a term paper. He got a C.
With the rise of computers and automation, Smith saw that the delivery of electronics and medicines would become increasingly time-sensitive. He saw a gap in the market for overnight delivery.
But before he could start to realize his vision, he first had to go to Vietnam. His father and three uncles had been in the military, and now it was Smith’s turn.
After graduation, he did two tours of Vietnam. He earned the Silver Star, Bronze Star, and two Purple Hearts. He earned the Silver Star for showing leadership and courage while leading an attack against the NVA.
Frederick W. Smith took this courage with him when he started FedEx (originally Federal Express). He invested all his family inheritance into the company ($4m). He knew that he needed to create a big enough network for the idea to work. He started in 1973 with 14 planes and 25 cities. Today he is worth $6bn.
“People thought we were insane.”
In the first 26 months, despite rapid growth, he lost $26m. He was able to raise $91m in venture capital to keep the company growing. But when the 1973 oil crisis hit, fuel prices sky-rocketed. FedEx started burning through cash.
Smith got down to his last $5,000 in cash. This was not even enough to pay the weekly fuel bill for the trucks and planes. But instead of folding, he showed courage under fire. He flew to Las Vegas and, at the blackjack table, turned his $5,000 into $27,000. He saved FedEx.
Soon after that, FedEx broke even and became the profitable company it is today.
Smith also showed great courage early on in dealing with regulators in Washington and established players in the airline industry. FedEx led the deregulation of the airline and air cargo industries. Smith has been inducted into the Aviation Hall of Fame.
In the 2000s, he competed with UPS, when UPS began its overnight delivery service. FedEx fought back by entering the ground delivery space. In the last ten years, ground delivery’s revenue has tripled.
More recently, Smith has taken the fight to Amazon. FedEx split from Amazon in 2019 as it became clear that Amazon was planning to set up its own delivery service. UPS has remained neutral.
FedEx has now allied itself with Walmart and other traditional retailers. Smith believes that FedEx can help them become an eCommerce force and disrupt Amazon.
Courage was not the only thing that Smith learned in the Marine Corps. He also learned leadership.
“The Marine Corps was my graduate school.”
Smith empowers frontline management and looks after them. They are his NCOs, the grizzly sergeants in the trenches. The job of the executives is to support them.
“The troops eat first.”
Smith has also created a high-performance culture, where good work is rewarded with public praise. Poor workers are shown the door.
Innovation has also been a key to FedEx’s ongoing success.
FedEx was the first logistics company to integrate air and land delivery and to use a hub and spoke model. FedEx also invented the tracking number, handheld barcode scanners, the first PC automated tracking system.
Today, FedEx is investing in customer-facing robots, AI, driverless trucks, delivery drones, electric trucks, and jet fuel from renewable sources.
“Change is inevitable. If you don’t like change, don’t work here.”
In the last ten years, revenue has almost doubled to $69.22bn (see chart below).
Over the same period, the share price has almost tripled. It is now at an all-time high.
The coronavirus has seen residential deliveries surge. This has increased revenues and profits from the ground and express delivery business units.
This increase in revenue has been reflected in the upward momentum in the stock price since May (see chart below).
While the indicator line remains above the MACD line, the decreasing histogram and recent “hanging man” candlestick suggest that the stock may be entering a downtrend.